ISLAND VOICES
Make politicians accountable

By Dr. Richard R. Kelley
Chairman of Outrigger Enterprises, Inc

The chief executive officers and chief financial officers of 745 publicly owned American companies recently had to scramble to meet a new federal deadline to personally certify that their most recent corporate financial statements are accurate and complete.

If the statements turn out to be inaccurate or incomplete, these CEOs and CFOs face penalties of $1 million and/or up to 10 years imprisonment for a "knowing" violation and $5 million and/or up to 20 years imprisonment for a "willful" violation.

These sanctions are the government's response to misleading accounting at Enron, WorldCom, etc. But with the barn door closed on these excesses, is the public now entirely safe? Or could the wool still be pulled over our eyes from some unexpected quarter?

What about government? What kind of requirements do our elected officials face in connection with the accuracy and completeness of the information they give us?

During the last few elections, promises were made about the strength of Hawai'i's financial position. Yet for the last three years, our state government has struggled to make ends meet. Imagine if Hawai'i were a stock traded on Wall Street and the chief executive had made bold statements about the state's financial condition that were subsequently contradicted by the facts? The price of Hawai'i stock would have plummeted, placing the CEO under enormous pressure.

Wouldn't it be only fair for the government to hold itself to the same standard it applies to corporate America? After all, the taxes we pay make government our single biggest "purchase" — 32 cents out of every dollar we earn, more than we pay, on average, for housing, food and clothing combined.

Unfortunately, government is not required to produce the same level of financial reporting as the private sector — a level that would give us the full financial picture. Companies must have both a balance sheet and an income statement.

By contrast, government only reports annual receipts and disbursements. It has no real balance sheet.

• There is no listing of all government assets, which range from cash (including special funds) to buildings, equipment and vast tracts of land.
• There is no enumeration of government liabilities, including bonds, committed projects and promised future pension and medical benefits.

Once capital expenditures are made, there is almost no process in place to track the value of the assets purchased.

Moreover, the government's counterpart to an income statement does not fully reflect current income and the true cost of operations.

For example, in Hawai'i, the future obligations of state and county governments for their employees' retirement are not included in the overall budget process. While part of the real cost of government, these expenses are reflected in the separate books of the Hawai'i Employees Retirement System.

The public needs to know whether income from taxes and fees actually covers the cost of government operations. If elected officials were held to the same standard now applied to corporate officers, government would not be able to hide losses by juggling the timing of payments or making unfunded promises on which future administrations and taxpayers will have to make good. And taxpayers could make more informed decisions at the ballot box.

Elections are coming soon. Those candidates who support better government financial reporting and the application of strong accuracy and completeness requirements on government officials at all levels — county, state and federal — will get my vote.